Labor's planned changes to negative gearing may be attracting most of the attention, but at least one high-profile economist thinks its proposal to halve the capital gains tax discount from 50 to 25 per cent will have an even bigger effect on property prices.

Key points:

Labor is proposing to halve the capital gains tax discount to 25 per cent

Economist Shane Oliver said the effect on house prices will be bigger than the proposed negative gearing changes

"I know there's been a lot of focus on negative gearing, but my feeling is that it's the capital gains tax, the discount there that will have the bigger impact," AMP capital chief economist Shane Oliver told the ABC's 7.30 program.

The proposed change means investors will pay more tax on the profit they earn from selling assets like shares and property.

'We've got until the end of the year'

Jason Watson, 43, is a truck driver in Brisbane.

He earns an average full-time wage and does not think he will have enough saved in superannuation to give him a comfortable retirement.

So he has decided to invest in property in the hope of securing his future.

"I guess as you get into your forties, you start to assess where you're at in life, your finances, and what your position is going to be looking like when you retire," he told 7.30.

"We realised that our super is not really going to be enough."

Labor's possible election victory has spurred Mr Watson and his partner Mel to take the plunge sooner than they had planned.

"We were looking at what we could do over the next 12 months, but now we've basically got until the end of the year to try and find a property and make a decision to actually get into the market," he said.

That is because Labor is taking two major tax policies to this year's election which directly impact property investment: removing negative gearing for people who buy existing properties, and cutting the capital gains discount.

If Labor wins, both changes will apply to properties purchased after January 1, 2020.

Under the current capital gains tax rules, investors receive a 50 per cent discount on the tax they pay on assets they hold for more than 12 months.

So, for example, if Jason bought a $500,000 house this year and after five years he sold that house for $550,000, he would only pay tax on $25,000 of the profit.

The discounted rate is supposed to both encourage investment as well as allow for inflation, the argument being people should not pay tax on income as they normally would if that income was simply the result of prices moving up in the meantime.

Mr Oliver said there is a debate about what the optimal level of the discount should be, especially in a time of historically low inflation.

"I think there should be some sort of discount in there," he said.

"In a world of very low inflation, the capital gains tax discount as it currently stands is actually quite generous."

Capital gains discount 'put rocket under property prices'

Labor's proposed changes to the capital gains tax should, along with its changes to negative gearing and ditching franking credit tax refunds, be seen as a clear desire to reshape what is taxed in Australia and how much it is taxed.

The capital gains tax was brought in by the Labor Party in 1985 under then-prime minister Bob Hawke and treasurer Paul Keating.

Australia was, at that time, one of the fewnations in the developed world where investors did not have to pay tax on the profit they made from buying and selling assets.

Under the original model, investors only paid the tax on the "real" profit, meaning that inflation was deducted first.

The Coalition aggressively fought the tax, and ran on a platform to repeal it in 1987 under then-opposition leader John Howard.

It lost that election but by the turn of the century, when Mr Howard was prime minister, it was able to get half way there by allowing a 50 per cent discount on profits to be taxed.

According to the former economics adviser to former prime minister Julia Gillard, Stephen Koukoulas, that put a rocket under property prices.

"There's no doubt that the capital gains tax discount did see investors flock into the property market. There's no question," he told 7.30.

"Other factors were at play but you could see that house prices, particularly in the big cities, were increasing sharply."

Mr Oliver agreed.

"I do think the capital gains tax discount was playing a role because, quite simply, investors were able to invest in property with some confidence that [they would] get a decent return at the end through capital growth," he said.

At this year's election, Labor has been very clear that it wants to have higher taxes on investments in order to pay for spending on things like education and health and to lower taxes on wages.

"We do believe that capital is taxed too lightly in Australia and income is taxed too heavily," said Opposition Leader Bill Shorten during the second leaders' debate.

"When the budget is in a proper surplus, we will look at income tax reductions across the board."

Impact on the property market

Although Labor's reduced discount will impact both property and share market investors, it is the impact on property prices which is likely to be larger, given that was also the case when the discount was imposed.

Mr Oliver is worried that Labor wants to unwind the change at a time when the property market is already looking weak.

"The danger is that changing the capital gains tax discount, along with negative gearing, could just add to downward pressure on property prices which in turn could risk underlying economic growth in the economy," he said.

It is a view echoed by the Assistant Minister for Treasury and Finance, Zed Seselja.

"The real impact goes to the broader economy and fundamentally to the housing market," he said.

"The discount should both account for inflation and encourage investment, but you must also remember that investors do receive a tax advantage because they don't pay the tax until they finally sell the asset.

"This deferral of tax is worth a lot because of the time value of money. In the meantime, they're able to potentially borrow against the capital gain and get an advantage that way."

Shadow Treasurer Chris Bowen said the capital gains tax changes are about restoring the tax scales in favour of lower income earners.

He said 70 per cent of the value of the capital gains tax concession goes to the wealthiest 20 per cent of households.

"This is a highly regressive tax concession which needs to be reformed," Mr Bowen said.

"If you get your income from working in a factory or an office you pay your marginal tax rate.

"We accept there should be some sort of discount for capital gains tax, but the 50 per cent discount, which was designed in a very different era, is no longer fit for purpose."